China is often called the factory of the world, as the country is the world’s largest manufacturing center. Naturally, it is also the largest importer of raw materials from countries such as Brazil, Australia and Canada. For that reason, a pick up in China’s manufacturing activity is generally positive for the shipping industry while a slowdown is negative.
On January 8th, 2013, the China Federation of Logistics & Purchasing announced that the country’s PMI (purchasing manager’s index) for the month of December 2012 stayed at 50.3. This is the third consecutive month that the index has hovered above 50. The PMI is a measure of economic activity often followed by analysts and traders. Figures above 50 indicate solid expansion while those between 42 and 50 show possible growth; levels under 42 signal a potential recession. The recent rise in China’s PMI follows a slew of central and local governments’ stimulus announcements during late summer 2012 to prop up slowing growth rates and manufacturing activity.
Investors who want to participate in this China stimulus theme can do so by investing in shipping companies. When the economy improves, global trade picks up and shipping companies benefit. Although there are several shipping companies such as Teekay Corp. (TK), Frontline, Ltd. (FRO), Diana Shipping Inc. (DSX) and DryShips, Inc. (DRYS) that investors can choose from, they can also use the Guggenheim Shipping ETF (SEA). The ETF attempts to track the Dow Jones Global Shipping Index and is well diversified into major shipping companies with high dividend payments, according to the issuer.